The Internal Revenue Service could do more to encourage tax preparers to reduce the $345 billion tax gap, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, found that while the IRSs 2009 strategic plan contains objectives and strategies designed to reduce the tax gap by engaging the tax preparer community, the plan does not contain sufficient measures for the IRS to evaluate its goals. Without specific performance measures, the IRS will not be able to monitor the effectiveness of its preparer-engagement strategies.
The tax gap is the difference between the annual federal tax obligation and the amount taxpayers pay voluntarily and on a timely basis. Taxpayers who fail to file their returns, fail to make their payments on time, file taxes but underreport their income, underpay the amounts owed, or file taxes but overreport their expenses, all contribute to the tax gap.
Paid tax preparers prepared more than half of individual tax returns in 2009, said TIGTA Inspector General J. Russell George in a statement. The IRS must step up its efforts to engage this community in its effort to close the tax gap.
In 2008, the IRS, the Treasury Department, the IRS Oversight Board, and a consulting firm identified emerging trends affecting tax administration. A key trend identified included the expanding role of tax practitioners and other third parties in the tax system. The IRS commissioner and his executives used these trends to develop a strategic plan outline, which was shared with IRS senior management in August 2008.
The IRSs strategic plan is supported by plans from 10 business divisions and functional offices, with numerous goals and activities to strengthen its partnership with tax practitioners. In June 2009, IRS Commissioner Doug Shulman launched a Return Preparer Review, which supports the strategic plan by enhancing compliance standards for tax preparers. The review resulted in a report in January 2010 that contained eight recommendations, including mandatory tax return preparer registration and competency examination requirements for tax preparers.
TIGTA recommended that the IRS update its current strategic plan to more clearly define its future objectives and ensure more effective tax administration. The IRS agreed to include TIGTA's recommendations in its next strategic plan, to be issued in 2013.
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